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Is Laboratory Corp. of America Holdings (LH) A Good Stock To Buy?

Reymerlyn Martin

We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of June 28th. In this article, we look at what those funds think of Laboratory Corp. of America Holdings (NYSE:LH) based on that data.

Is Laboratory Corp. of America Holdings (NYSE:LH) ready to rally soon? The smart money is in a pessimistic mood. The number of long hedge fund bets decreased by 1 recently. Our calculations also showed that LH isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the recent hedge fund action encompassing Laboratory Corp. of America Holdings (NYSE:LH).

What have hedge funds been doing with Laboratory Corp. of America Holdings (NYSE:LH)?

Heading into the third quarter of 2019, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LH over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

LH_oct2019

When looking at the institutional investors followed by Insider Monkey, Iridian Asset Management, managed by David Cohen and Harold Levy, holds the number one position in Laboratory Corp. of America Holdings (NYSE:LH). Iridian Asset Management has a $178.1 million position in the stock, comprising 2.6% of its 13F portfolio. The second largest stake is held by Ariel Investments, managed by John W. Rogers, which holds a $159.2 million position; 2% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions include Ken Griffin's Citadel Investment Group, Cliff Asness's AQR Capital Management and Gabriel Plotkin's Melvin Capital Management.

Seeing as Laboratory Corp. of America Holdings (NYSE:LH) has witnessed falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of fund managers that elected to cut their positions entirely by the end of the second quarter. Intriguingly, Roberto Mignone's Bridger Management dropped the largest stake of the "upper crust" of funds tracked by Insider Monkey, comprising about $50.6 million in stock, and Jeffrey Talpins's Element Capital Management was right behind this move, as the fund dumped about $13.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Laboratory Corp. of America Holdings (NYSE:LH) but similarly valued. These stocks are ANSYS, Inc. (NASDAQ:ANSS), Cincinnati Financial Corporation (NASDAQ:CINF), Diamondback Energy Inc (NASDAQ:FANG), and Copart, Inc. (NASDAQ:CPRT). This group of stocks' market caps are similar to LH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANSS,25,789741,-3 CINF,18,567138,-3 FANG,47,1531990,0 CPRT,30,252281,6 Average,30,785288,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $785 million. That figure was $1529 million in LH's case. Diamondback Energy Inc (NASDAQ:FANG) is the most popular stock in this table. On the other hand Cincinnati Financial Corporation (NASDAQ:CINF) is the least popular one with only 18 bullish hedge fund positions. Laboratory Corp. of America Holdings (NYSE:LH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately LH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LH were disappointed as the stock returned -2.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.

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